We are the heirs (two sons domiciled in the United Kingdom) of a property that my father has in Denia (Costa Blanca) Spain, and we want to know what value we should give to the property that we are going to inherit, and what we should take into account in order to value it. Thank you for your advice.
Dear reader, thank you for your enquiry.
In an earlier article, we explained how to value a real estate asset for the purposes of an inheritance in Spain : In the Valencian Community, coefficients are provided by the authorities, for which it is necessary to multiply the cadastral value of the property, which will result in what is known as the real value of the property for tax purposes, or the minimum tax value. You can calculate and obtain this value on the website of the Generalitat Valenciana.
This minimum tax value, in principle, implies the minimum value acceptable by the taxman, that is, if you value the property below it, it is very likely to be revised, since it would be understood that it is not according with the real market value.
But there are other issues to consider in order to fix the value of a property. For example, it is possible that the minimum tax value is not realistic and also that it is not appropriate for your specific circumstances. Thus, in order to determine the value of the property correctly and in a fiscally efficient manner, it is necessary to know the minimum tax value, but also the approximate real market value, if the heirs wish to sell the property after the inheritance, or if they will keep it for years, etc.
Imagine that in your case, you want to sell after the inheritance, and although the minimum tax value of the property is 100,000 €, the market value is between 160,000 € and 200,000 €. If you are the children of the deceased, and resident in the European Union, the inheritance and gift tax (IHT) of the Valencian Community Law is applicable, each of you will have a reduction of 100,000 €, that means for the first € 100,000 that each of you receives from your father, you will not pay IHT, in Spain.
In this case, even if the minimum tax value for the full property is € 100,000, fiscally and considering the market value and their intentions of selling, it would be advisable to value the property for about € 180,000 or even € 200,000, which would mean that if each of one will inherit a half of the property, for a value of € 100,000 each, and you would not pay IHT, for the reduction mentioned.
Thus, in the future sale, if each of you sell your half for the inherited value of € 100,000 or less, you will not have a Capital Gain.
Therefore, in the case indicated, it is advisable to fix the value of the property in an amount higher than the minimum tax value, as the heirs would not pay inheritance tax, and also, in an eventual future sale, would not pay Capital Gain Tax, by selling for the same or less than the inherited value.
If you are going to inherit in Spain or want to design a fiscally efficient inheritance, contact us, we will help you.
The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.
Carlos Baos (Lawyer)
White & Baos
Tel:+34 966 426 185
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